Do you know if you are making a profit from all your clients? Many businesses are losing money on some customers…are you?
Following are 4 reasons to make profitability analysis work for your business:
Reason 1: How expensive is your customer?
Does your business know the costs directly attributed to providing products and services for every customer? A review of your pricing and pricing strategy, as well as a deep analysis of the costs, required to produce your product or service is highly recommended. An analytics focused Accountant can help by analyzing what special perks, discounts, terms etc. are being given. The results will help you determine whether or not these benefits are warranted, outdated or need to be adjusted. Moreover, you can then decide to continue to work with certain customers or adjust the pricing to improve the overall profitability of your business.
Reason 2: Customer Revenue is not as important as Customer Profit
It is important to understand and know the client who is generating a significant share of the revenue; they may not be the ones generating the profit. Often these accounts enjoy large discounts and lax payment terms because of the larger volume they do with your company, conferring some perceived bargaining power. Furthermore, at the opposite end of this sales spectrum could be a large number of occasional or small customers. They do not purchase enough to cover the cost of setting up and administering their accounts.
Reason 3: Learn and know your customers
A skilled management professional will determine who is actually generating a positive net margin. Every business has some customers who are more valuable than others. It can be the size of their purchases to their relationship or the ease of dealing with them, for example. A successful business will identify these customers, foster relationships with their team, and target clients with the similar profile. Profitability analysis will help you learn about your customers.
Reason 4: Strategic profitability plan for current and new clients
Additionally, why not implement improvements to increase margins and make it less expensive and more profitable to do business with your present customers while acquiring new clients that fit your ideal client profile. A profitability analysis from Accounting 360 Solutions can help address your client retention, discount policies, channel strategies and terms. Items you can put into action for improved results.
You, as the business owner, your operations and sales teams can be involved, as needed to create:
- A better pricing strategy
- Sales mix
- Cost management
- An improved bottom line
Profitability analysis can be a driver of long-term success.
Contact Accounting 360 Solutions to see how their team can provide your business increased profitability.
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